IDEAS home Printed from https://ideas.repec.org/p/dbe/wpaper/0814.html

Local coordination and global congestion in random networks

Author

Listed:
  • Iván Arribas

    (ERI-CES, University of Valencia, Ivie)

  • Amparo Urbano Salvador

    (ERI-CES, University of Valencia)

Abstract

This paper analyzes the impact of local and global interactions on individuals' action choices. Players are located in a network and interact with each other with perfect knowledge of their neighborhood and probabilistic knowledge of the complete network topology. Each player chooses an action, from some finite set, which imposes an externality on their neighbors as well as an externality on the complete network. Players deal with two opposing forces: they obtain utility from sharing their choices with their neighbors (positive local externality) but suiter disutility from sharing the same choice with all members of the network (negative global externality). Economic and social phenomena exhibiting these features are: the adoption of cost-reducing innovations, clusters of firms, time schedule choices, the adoption of subcultures and fads, among others. We find the conditions for the existence of all symmetric Bayesian Nash equilibria and translate them to a characterization in terms of the main properties of the network topol- ogy. The balance between local satisfaction and global dissatisfaction partially explains the equilibrium outcome. The players who finally decide on the type of equilibria are those that are either highly connected (hubs) or poorly connected (peripherals) to the others. On the one hand, hubs try to coordinate their action choices and on the other, peripherals are only worried about congestion and play the least selected actions of the network. Some examples illustrate our main results. As a by-product we also show the failure of symmetric

Suggested Citation

  • Iván Arribas & Amparo Urbano Salvador, 2014. "Local coordination and global congestion in random networks," Discussion Papers in Economic Behaviour 0814, University of Valencia, ERI-CES.
    • Handle: RePEc:dbe:wpaper:0814
    as

    Download full text from publisher

    File URL: https://www.uv.es/erices/RePEc/WP/2014/0814.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Andrea Galeotti & Fernando Vega‐Redondo, 2011. "Complex networks and local externalities: A strategic approach," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 77-92, March.
    2. Sanjeev Goyal, 2007. "Introduction to Connections: An Introduction to the Economics of Networks," Introductory Chapters, in: Connections: An Introduction to the Economics of Networks, Princeton University Press.
    3. Sundararajan Arun, 2008. "Local Network Effects and Complex Network Structure," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-37, January.
    4. Arthur, W Brian, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, American Economic Association, vol. 84(2), pages 406-411, May.
    5. Yannis M. Ioannides, 2005. "Random Graphs and Social Networks: An Economics Perspective," Discussion Papers Series, Department of Economics, Tufts University 0518, Department of Economics, Tufts University.
    6. Renault, Jerome & Scarlatti, Sergio & Scarsini, Marco, 2005. "A folk theorem for minority games," Games and Economic Behavior, Elsevier, vol. 53(2), pages 208-230, November.
    7. Christopher Mayer & Todd Sinai, 2003. "Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why Not All Delays Are Evil," American Economic Review, American Economic Association, vol. 93(4), pages 1194-1215, September.
    8. Coralio Ballester & Antoni Calvó-Armengol & Yves Zenou, 2006. "Who's Who in Networks. Wanted: The Key Player," Econometrica, Econometric Society, vol. 74(5), pages 1403-1417, September.
    9. W. Brian Arthur, 1994. "Inductive Reasoning, Bounded Rationality and the Bar Problem," Working Papers 94-03-014, Santa Fe Institute.
    10. Hannu Salonen, 2010. "On the existence of Nash equilibria in large games," International Journal of Game Theory, Springer;Game Theory Society, vol. 39(3), pages 351-357, July.
    11. Shu-Heng Chen & Umberto Gostoli, 2017. "Coordination in the El Farol Bar problem: The role of social preferences and social networks," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 12(1), pages 59-93, April.
    12. Challet, D. & Zhang, Y.-C., 1997. "Emergence of cooperation and organization in an evolutionary game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 246(3), pages 407-418.
    13. repec:dau:papers:123456789/6223 is not listed on IDEAS
    14. Vives, Xavier, 1990. "Nash equilibrium with strategic complementarities," Journal of Mathematical Economics, Elsevier, vol. 19(3), pages 305-321.
    15. Renault, Jerome & Scarlatti, Sergio & Scarsini, Marco, 2005. "A folk theorem for minority games," Games and Economic Behavior, Elsevier, vol. 53(2), pages 208-230, November.
    16. Arun Sundararajan, 2004. "Local Network Effects and Network Structure," Industrial Organization 0412011, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kets, W., 2008. "Networks and learning in game theory," Other publications TiSEM 7713fce1-3131-498c-8c6f-3, Tilburg University, School of Economics and Management.
    2. Linde, Jona & Sonnemans, Joep & Tuinstra, Jan, 2014. "Strategies and evolution in the minority game: A multi-round strategy experiment," Games and Economic Behavior, Elsevier, vol. 86(C), pages 77-95.
    3. Willemien Kets, 2007. "The minority game: An economics perspective," Papers 0706.4432, arXiv.org.
    4. Zhigang Cao & Cheng-zhong Qin & Xiaoguang Yang & Boyu Zhang, 2019. "Dynamic matching pennies on networks," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(3), pages 887-920, September.
    5. repec:dau:papers:123456789/2347 is not listed on IDEAS
    6. Kets, W. & Voorneveld, M., 2007. "Congestion, Equilibrium and Learning : The Minority Game," Other publications TiSEM 49539a1f-2921-4dd9-83a0-4, Tilburg University, School of Economics and Management.
    7. Xin-Jie Zhang & Yong Tang & Jason Xiong & Wei-Jia Wang & Yi-Cheng Zhang, 2018. "Dynamics of Cooperation in Minority Games in Alliance Networks," Sustainability, MDPI, vol. 10(12), pages 1-17, December.
    8. repec:dau:papers:123456789/6381 is not listed on IDEAS
    9. Jérôme Renault & Marco Scarsini & Tristan Tomala, 2007. "A Minority Game with Bounded Recall," Mathematics of Operations Research, INFORMS, vol. 32(4), pages 873-889, November.
    10. Challet, Damien & Zhang, Yi-Cheng, 1998. "On the minority game: Analytical and numerical studies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 256(3), pages 514-532.
    11. Chmura, Thorsten & Pitz, Thomas, 2004. "Minority Game: Experiments and Simulations of Traffic Scenarios," Bonn Econ Discussion Papers 23/2004, University of Bonn, Bonn Graduate School of Economics (BGSE).
    12. de Martí, Joan & Zenou, Yves, 2009. "Social Networks," IZA Discussion Papers 4621, IZA Network @ LISER.
    13. Rothenstein, R & Pawelzik, K, 2003. "Evolution and anti-evolution in a minimal stock market model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 326(3), pages 534-543.
    14. Kristoufek, Ladislav & Vošvrda, Miloslav S., 2016. "Herding, minority game, market clearing and efficient markets in a simple spin model framework," FinMaP-Working Papers 68, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.
    15. Cross, Rod & Grinfeld, Michael & Lamba, Harbir & Seaman, Tim, 2005. "A threshold model of investor psychology," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 354(C), pages 463-478.
    16. Andersen, Jørgen Vitting & de Peretti, Philippe, 2021. "Heuristics in experiments with infinitely large strategy spaces," Journal of Business Research, Elsevier, vol. 129(C), pages 612-620.
    17. Ren, F. & Zhang, Y.C., 2008. "Trading model with pair pattern strategies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(22), pages 5523-5534.
    18. Gu, Gao-Feng & Chen, Wei & Zhou, Wei-Xing, 2008. "Empirical regularities of order placement in the Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(13), pages 3173-3182.
    19. Chmura, T. & Pitz, T., 2006. "Successful strategies in repeated minority games," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 363(2), pages 477-480.
    20. Alvarez-Ramirez, Jose & Suarez, Rodolfo & Ibarra-Valdez, Carlos, 2003. "Trading strategies, feedback control and market dynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 220-226.
    21. Yamada, Takashi & Hanaki, Nobuyuki, 2016. "An experiment on Lowest Unique Integer Games," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 463(C), pages 88-102.
    22. Luş, Hilmi & Onur Aydın, Cevat & Keten, Sinan & İsmail Ünsal, Hakan & Rana Atılgan, Ali, 2005. "El Farol revisited," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 651-656.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dbe:wpaper:0814. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emilio Calvo Ramón (email available below). General contact details of provider: https://edirc.repec.org/data/ericees.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.